Uncertain Future for Rapidly Growing India

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As the country's economy expands, will its political culture take the necessary steps to reform, or will corruption and inequality come to dominate tomorrow's India?

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Ajay Verma / Reuters.


MUMBAI, India -- In the world's expanding economies, from the 19th century U.S. through India today, rapid economic growth often goes hand-in-hand with corruption and inequality. This has been true in market-based economies of the United States during its "robber barons" era to the state-led capitalist model that we see today in China, Russia, and elsewhere in the developing world. But how states respond to this challenge varies widely. The model that India adopts in fighting corruption and inequality will play a large role in determining what kind of country it becomes, and what role the growing Indian market plays in the larger world economy.

Economic development in a weak or collusive state like India's often generates, and is fed by, corruption. This process creates inequalities of wealth, income, and power. However, it's also possible that these very forces, by evoking public discontent, pose a danger to the legitimacy of the capitalist system itself. This danger necessitates a policy response from the state, regardless of its political system or ideological bent.

A number of developing states today, and in the past, have faced the problem of fighting the corruption that is often endemic to rapid economic growth. But the way they have addressed that problem has varied widely.

In the United States, the government responded by instituting regulatory reform and creating a welfare state. Post-unification, Bismarck-era Germany took a similar path around the same time, and later so did the United Kingdom as well as other Western democracies.

The world's fast-growing, emerging economies of today -- particularly the "BRICS" block of Brazil, Russia, India, China, and South Africa -- reveal a diversity of potential outcomes, some far different, and far less sanguine, than the typical Western story.

Russia experienced its own robber barons period in the 1990s under President Borin Yeltsin, in which crony capitalism and oligarchs displaced the old Soviet system. The backlash resulted in a return to authoritarianism under his successor, President Vladimir Putin. The oligarchs were reined in, not by regulatory reform in a pluralistic democracy, but by the iron fist of the Kremlin reasserting its control over the nation; vast resources that had been plundered in the preceding decade.

China, which has remained authoritarian throughout its phase of rapid growth, has responded to bubbling discontent -- a feature of its growing middle class -- by clamping down on dissent, locking up human rights activists, and censoring the internet. Meanwhile, China is fine-tuning its economic model to try and better share the fruits of development, thereby maintaining the political legitimacy of the Communist Party.

India tells a different tale. With a weak central government that lacks the coercive might of either Moscow or Beijing, there is a frenzied grab for scarce resources. In this way, India not changed very much since feudal times. There remains a close relationship between control of resources -- especially land and what springs from it -- and the corresponding economic and political power that they generate.

Ongoing, large-scale protests in the impoverished northern state of Uttar Pradesh -- in which farmers are demanding fair compensation for their land, which the state government acquired for infrastructure development -- demonstrate just how important land is in the Indian political economy.

Elsewhere, in the prosperous southern state of Karnataka, for instance, a "mining mafia" with ties to the state government illegally extracts mineral resources, at great detriment to the environment and local economy, in full view of the public and media, and with the apparent connivance of the authorities.

In the under-developed but resource-rich central and eastern peripheries of the country, by contrast, the land grabbing and resource extraction occur under the cover of a Maoist insurgency, which provided a justification for large development expenditure and an excuse for the subsequent misuse or misappropriation of those funds.

In urban India, where most of the economic growth has so far been concentrated, there are stirrings of middle class revulsion against the excesses of gangster capitalism. It's a mood reminiscent of the backlash against the robber barons in the United States a century ago. Two recent anti-corruption movement -- one led by Anna Hazare, a wizened war veteran; the other by Baba Ramdev, a yoga guru turned politician -- attest to this burgeoning movement.

But it is not clear that India will ultimately repeat the American experience. Indian politics may well resort to a strategy of populism, paternalism, and a renewed quasi-feudal patron-client relationships to buy off the disaffected, rather than to remake the system from the ground up.

There is one crucial missing link in India's otherwise thriving and robust democracy, the absence of which will complicate the country's political response to this economic problem: principled, motivated political parties. There is no party in Indian politics that could genuinely build a reform-oriented agenda crossing the country's left-right political divide.

Rather, each of the major, viable parties is what political scientists call a brokerage party. As American commentator David Frum defined them, they are "a political entity without fixed principles or policies that exploits the power of the central state to bribe or bully incompatible constituencies to join together to share the spoils of government." No party such as this will be able to responsibly solve the problems of corruption and inequality.

It is an open question whether India is on its way to maturing into a modern, Western-style democracy in which a suitably regulated, market-based capitalism coexists with a functioning welfare state, or whether it will slip into an oligarchic-feudal state in which a few well-connected families and business houses control the levers of both economic and political power and keep the restive masses in line with a suitably spicy combination of bread and circuses.

India is at a fork in the road. The coming years will tell us which path it has chosen to travel.

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Vivek H. Dehejia is an economics professor at Carleton University in Ottawa, Canada, and a research fellow at CESifo in Munich, Germany.

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